As an expert in helping businesses grow, Everest and Co Accountants want to highlight an important upcoming change: starting from April 1, 2024, the way research and development (R&D) tax benefits work will change.
The Tax Perks for Innovators
Up until now, UK businesses have enjoyed huge tax benefits for investing in innovation. In fact, they've claimed a whopping £7.6 billion in R&D tax reliefs. This support from the government has been a big boost for creativity and exploration in the business world.
Combating Abuse and Streamlining the Process
The system wasn't perfect though, as some people were bending the rules to claim reliefs they didn't deserve. In early 2021, the government decided to revamp the tax relief system to fix this. After much discussion, they've decided to blend the two existing R&D schemes into one, hoping it'll make things simpler and tougher to exploit.
Understanding the New Single R&D Scheme
Starting in April 2024, the new combined scheme will replace the separate ones for small to medium enterprises (SMEs) and larger companies. The government hopes this will make it easier to apply for and protect tax reliefs but watch out—small businesses might not get as much benefit as before.
The Split System for Super-Innovative SMEs
Even with this new combined scheme, there's still a special deal in place for very innovative SMEs. Businesses spending a big chunk of money on R&D can get extra tax relief. Such companies had to invest at least 40% of their total spending on R&D to qualify, but now, they can do so with only 30%. This change widens the net, allowing more businesses to get extra support.
Navigating the Shift for Subcontracted R&D
The updated rules for R&D can be tricky to navigate, especially for subcontractors. Previously, small businesses hired by big companies to handle R&D could claim relief for their work. Under the new system, the big companies will instead claim that relief.
No More Penalty on Subsidised R&D Spending
Before these changes, if a business's R&D was funded by a subsidy, claiming tax credits could get complicated. The new scheme scraps those old limits. Businesses will be able to claim tax credits on all R&D costs, not worrying whether the money was subsidised or not—a big win for simplicity and support.
Advisors Need to Keep Up-to-Date
For accountants and advisors like us at Everest and Co, it's crucial to stay on top of these changes. We need to guide our clients through the shifts, so they get every penny of relief they deserve.
Final Thoughts
Even though the changes herald the end of discussions on the R&D tax relief adjustment, it shouldn't be the end of the conversation. The aim is to keep the UK at the forefront of innovation by continually refining this tax relief. So, for all businesses, especially those investing in R&D, it's time to familiarize yourself with these forthcoming changes and how they may affect you.
Remember, we're here to navigate these updates together. If you have any questions, don't hesitate to reach out to Everest and Co Accountants at 01902219680. Anuj Paudel and our team are ready to assist.